King v. Burwell and the Meaning of Words in the Law

Later on this month, the United States Supreme Court will rule on a case involving a subsidy that, if ruled to be unlawful, will cause a further disruption to the market for health insurance.

The case, King v. Burwell, involves an interpretation of a portion of the Patient Protection and Affordable Care Act, a.k.a. “Obamacare”. A little background is in order here. The law(1), signed in March of 2010, imposed an enhanced set of requirements for health insurance providers to operate their business. A sampling of such requirements, codified in 42 U.S.C. Section 300gg-11 through 330gg-19a (2), is paraphrased by me below as the Eight Commandments from the Secretary to the Health Insurance Provider community:

1. Health insurance providers cannot establish lifetime or annual limits on coverage.

2. Once coverage is provided, health insurers cannot rescind coverage.

3. Health insurers must provide coverage, at a minimum, a specified group of services.

4. Health insurers must offer coverage for the dependent of a customer until the child turns 26 years old.

5. Health insurers must present their plan explanations using a format determined by the Secretary of Health and Human Services.

6. Group health plans cannot unduly discriminate in favor of highly compensated individuals.

7. Health insurers must periodically report to the Secretary on the quality of their coverage, and this information must also be made available to an enrolee upon request.

8. Health insurers must use a minimum percentage of the revenue from premiums on the costs of coverage. If the minimum percentage is not met, the difference must be refunded to the customers.

Another major piece of the Act is that the state governments were exhorted to create their own exchanges (i.e., marketplaces where customers can compare plans), and in those states that refuse to set up these exchanges, the federal government was to set up the exchanges in their absence. (3) Under the Act, customers obtaining their plan through the government exchange can be eligible for pay-as-you-go subsidies to offset the cost of the premiums.

I’ll be up front about this – I’m not a fan of this type of government interference. If a a customer has the choice to purchase one of two identical vases. One vase is priced at $50, and the other is priced at $60, and then the law changes to require all vases to have gold stenciling. The private merchant, having to account for the additional cost, can only sell the revised vase for $65, while the government-subsidized vase provider can keep the selling price at $60 because it isn’t accountable for market costs (at least not in the short term).

But aside from the philosophical objection to this program, there’s a more concrete obstacle to the government‘s actions. The subsidies that accompanied the federal exchanges, which were set up in the 37 states that didn’t set up their own, may not be authorized under the law. This brings us to Section 1401 of the Act, which amends the Internal Revenue Code to add the health insurance premium credit. There’s a lot of material here establishing the credit, measuring how much and to whom the credit applies, but the disputed section is found in paragraph (B)(2)(A) of the new statute, which defines the premium assistance amount.

(2) Premium assistance amount.–The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of–

(A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 of the Patient Protection and Affordable Care Act, or

(B) the excess (if any) of–

(i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over

(ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.

The emphasized language would appear, on its face, to limit the subsidies to the exchanges set up by the states. The states weren’t required to follow the Act’s exhortation to set their own health insurance exchanges, so the subsidy was added as leverage to force the states into setting them up. Rush Limbaugh concisely summarized the situation at hand:

So there are a lot of states that do not have exchanges and a lot of people that do not legally qualify for Obamacare subsidies. So what the Regime did was set up a subsidy program for the federal exchange, That is against the law, if that matters anymore. It is not permitted under the actual law of Obamacare. It’s not permitted. You can only get a subsidy via state exchange. Well, the Fed said, “We can’t have this. This is unfair, it’s unequal, it defeats the whole purpose.” The subsidies is the trick. The subsidies is how everybody thinks they can afford this. Getting a government handout, getting a government gift, why, that’s key to making this work.

So they started offering subsidies at, and now there’s a lawsuit on this and oral arguments are coming up. And these people are getting subsidies. There are people currently receiving subsidies when they buy health insurance, they’re getting it illegally.

There’s also some circumstantial evidence on how the IRS viewed this as an obstacle to implementing the credits. That hasn’t stopped proponents of the federal subsidy from running all kinds of interference to say that the plain text reading can’t possibly have been what the lawmakers intended. It was all a mistake, the New York Times reported, saying that this language was “inadvertent,” “inartful” or “a drafting error. That runs counter to the explicit message from Jonathan Gruber, who was instrumental in designing the Act:

What’s important to remember politically about this is if you’re a state and you don’t set up an exchange, that means your citizens don’t get their tax credits – but your citizens still pay the taxes that support this bill. So you’re essentially saying [to] your citizens you’re going to pay all the taxes to help all the other states in the country. I hope that that’s a blatant enough political reality that states will get their act together and realize there are billions of dollars at stake here in setting up these exchanges. But, you know, once again the politics can get ugly around this.

This makes attempts to make words mean other than their true meaning look absurd:

The government argues in response that other provisions of the statute make clear that the phrase “an Exchange established by the State” is a term of art. It means an exchange either established by a state or established by the federal government on behalf of a state.

This argument treats the phrase“an Exchange established by the State” as if to read “an Exchange establishedbytheState”, with the last term becoming an irreducible from which ambiguity can be invented.

If the court were to rule that the subsidies in states without health insurance exchanges were invalid, bad things are predicted. Health insurance costs to the customer are anticipated to rise by as much as 650 percent in places where the subsidies would be invalidated. Inexplicably, the media is attempting to make this a problem for the congressional Republicans, who had no part in passing this law or in illegally (should the Court so rule) dishing out these subsidies. If the Court follows the law as written and intended, this would be Obamacare, uncovered. Without the fig leaf of government subsidies driving down the cost to customers at the expense of taxpayers, the program fails on its promises.

It would be one matter if this case were an anomaly. We’ve come a long way from the core legal principle of the rule of law. The Environmental Protection Agency has recently expanded its jurisdiction over coal production and water regulation not by any enactment of new legislation, but by rule-making based on divinations of existing legislation. At least in those power grabs, I would imagine the statutory language cited allowed for room in ambiguity. The federal health insurance subsidies don‘t even have that crutch to rely on: the federal government implemented them in contradiction to explicit language denying it the right to do so.

Why express the law in words at all, if they don’t even matter?

What’s worse is that this overreach of the right to give subsidies may have been baked into the cake of implementing the federal subsidies. Instapundit has a collection of articles stating that the pressure to “fix” the subsidies is on the congressional Republicans, and summarizes why it shouldn’t be so:

Yep, intelligent individuals know who is to blame for Obamacare and all its warts. But the problems is that low information voters have swallowed the progressive/liberal mainstream media’s storyline, which of course blames the Republicans for the harsh, natural consequences of an ill-considered bill they never supported in the first place.



(1) Public Law 111-148. Link to the Act is here: However, see the next footnote for the utility in viewing this law through the unfiltered public law.

(2) To be the most precise, Public Law 111-148 is the legal authority for these requirements. However, the legislation that became this public law is cluttered: the last part of one legislative bill made changes to the preceding portions, and a second bill made further changes on top of that. The publication of the United States Code is designed to address situations like this. It’s a government publication designed to represent the most current statutory law that citizens would need to be made available. Not everything that’s enacted as a public law makes it into the Code.

(3) Sections 1321 and 1331 of the Act.

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